By FXEmpire.com
We move into a new week not much different than the previous with the acknowledgment that it has been a bad week indeed for anyone trading with a bullish view on risk assets. Global and Asia ex-Japan equities have slumped 1.6% and (an impressive) 3.7% respectively as at the end of the week. The slumping in Asia ex-Japan has been particularly telling, as political turmoil in Europe has not helped the region, nor has the weaker than expected trade data out of China this past week.
FX volatility in Asia has been rising since bottoming out around the turn of the month, coincidental with the break out to a new three-plus month high in our USD/Asian FX index. Interestingly the vol reaction in the higher-beta KRW came later relative to currencies like SGD and TWD. The move higher in vol perhaps reflects of concerns over Europe once again knocking global growth through the financial market channel. The fact that a number of currencies in Asia are sinking to new multi month lows versus the greenback (Thailand, India, and Indonesia) is indicative of the logical direction for vol.
The People’s Bank of China, on Sunday announced it would cut the ratio of capital reserves required to be held by financial institutions within the country, to stimulate the economy.
Greece moved closer to fresh elections on the weekend as talks between political parties, who are divided over austerity measures, failed to establish a coalition government.
Voters angry at the austerity measures, imposed in order to secure bailout funding from the European Union, demolished the ruling government at last week’s poll but failed to give any party a parliamentary majority.
If the country is forced to hold new elections it will be unable to enact further planned austerity measures in the next month, putting at risk the bailout funding and the country’s membership in the eurozone.
EU Finance Ministers called an emergency meeting today, to discuss the ousting of Greece from the euro.
This uncertainty continues to feed the risk aversion sentiments of the markets.
The Yen and USD continue to benefit from the run for safety, both increasing by of 0.3% against most of the major trading partners.
Click here a current EUR/USD Chart.
Originally posted here
